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Impact of Macroeconomic Indicators on Stock Market Performance: Evidence from India

- Riya Gupta, Student, Amity Business School, Amity University, Chhattisgarh.  E-MAIL: -riyaguptaa18@gmail.com

Dr. Suresh Pattanayak – Associate Professor, Amity Business School, Amity University, Chhattisgarh,

Email: - skpattanayak@rpr.amity.edu

ABSTRACT: This research aims to explore the dynamic relationship between major macroeconomic indicators—specifically Gross Domestic Product (GDP) growth, inflation rates, interest rates, and exchange rate movements—and the performance of the Indian stock market, with the Bombay Stock Exchange (BSE) Sensex serving as the primary indicator of market activity. The study employs a quantitative methodology, using time-series data spanning from 2018 to 2023, a period marked by both economic expansion and significant disruptions, notably the COVID-19 pandemic.

To evaluate the connection between macroeconomic fundamentals and stock market trends, the research utilizes descriptive trend analysis and correlation techniques. The results indicate that

GDP growth and monetary policy—particularly changes in the Reserve Bank of India’s interest rates—have the most substantial and direct impact on stock market performance. GDP growth was positively correlated with market gains, reflecting investor optimism during periods of economic expansion. Conversely, higher interest rates were generally associated with downward pressure on market valuations, as they tend to tighten liquidity and raise the cost of borrowing.

Inflation and exchange rates, while less uniformly influential on the broader index, were found to have significant effects on specific sectors. For example, rising inflation often affected consumer goods and manufacturing sectors by increasing input costs and eroding purchasing power. Similarly, exchange rate depreciation had a mixed impact—export-driven industries such as IT and pharmaceuticals benefited from a weaker rupee, whereas import-reliant sectors experienced margin compression.

The period of the COVID-19 pandemic introduced an important deviation from typical macroeconomic behavior. Despite a severe contraction in GDP during 2020, the stock market rebounded sharply, driven largely by policy measures, investor optimism, and global liquidity. This divergence underscores the role of market sentiment, behavioral responses, and government interventions in shaping short-term stock market outcomes, even when fundamental indicators suggest otherwise.

In conclusion, the study reinforces the significance of monitoring macroeconomic indicators to understand stock market behavior, particularly in emerging economies like India. It highlights the dual role of economic fundamentals and psychological factors in influencing investor decisions. The findings offer practical implications for investors seeking to align their strategies with economic trends and for policymakers aiming to craft effective financial and monetary interventions. The study also encourages future research using more advanced econometric techniques to further validate and deepen these insights.

KEYWORDS: Macroeconomic Indicators, Stock Market, GDP, Inflation, Interest Rate, Exchange Rate, BSE Sensex, India, Economic Policy, Financial Markets